Drug dealer beats taxman in court

28 October 2004 — 10:00am

A convicted heroin dealer will be allowed to claim a $220,000 tax deduction for money lost during a drug deal after the Australian Taxation Office lost a bid to appeal against a full Federal Court ruling in his favour.

The case yesterday prompted the Federal Government to announce that it will change the law to prevent criminals from claiming tax deductions for money lost in drug deals and other illegal activities.

A spokeswoman for Treasurer Peter Costello said the Government would change the law to overcome yesterday's ruling.

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The Commissioner of Taxation had been seeking leave in the High Court to appeal against the Federal Court's decision that Perth man Francesco Dominico La Rosa, 56, could write the money off as lost income.

The Tax Office had been trying to make La Rosa - who served a 12-year jail term for dealing in heroin and amphetamines - pay tax on his 1994-95 assessable income, which it estimated at $446,954.

But La Rosa insisted his taxable income should be reduced for that year because it wrongly included a sum of $224,793.

The money had been buried in La Rosa's backyard and was dug up for use in an intended drug deal in May 1995, but was stolen during the transaction by unknown people.

After the ruling La Rosa said: "If the tax (office) wants to classify drug dealing as a business and they want a cut of their taxation money, why not?" - but that allowed deductions too.

"This robbery that took place where there was $220,000 taken, I was shot at."

La Rosa said he still owed more than $1 million in tax and penalties and, as a pensioner, there was no way he could pay.

In 2001 the Administrative Appeals Tribunal held that the money was lost during activities directly connected with La Rosa's illicit drug-dealing business and was lost during operations to acquire trading stock.

On the basis of those findings, the tribunal concluded that while the income had been properly included in La Rosa's income as part of the default assessment process - enacted when he failed to lodge tax returns for seven years - it was allowable as a deduction.

The Tax Office appealed to the Federal Court, arguing there was no evidence that the money had been stolen and it was against public policy to allow stolen money as a tax deduction. But the Federal Court upheld the tribunal's decision.

The Tax Office then appealed to the full court of the Federal Court and that appeal was dismissed in June 2003.

Yesterday, the High Court, in Perth refused the Tax Office's application for special leave to appeal. The ruling means the Tax Office has exhausted all avenues of appeal.